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  To begin with: What is open banking? According to Wikipedia, open banking is a financial service term as part of financial technology that refers to: i.) The use of open APIs that enable third-party developers to build applications and services around the financial institution. ii.) Greater financial transparency options for account holders ranging from open data to private data. iii.) The use of open source technology to achieve the above.
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Open banking will benefit anyone who has money and engages in financial transactions. From government officials to banking institutions and FinTechs to SME’s and ordinary individuals, open banking will benefit all. Primary, there are key participants in the open banking ecosystem:  
  • Banks that build APIs;
  • Licensed third party providers (TPPs) that integrate with bank APIs; 
  • Companies that use TPP services to offer innovative solutions; 
  • End-users as final beneficiaries of open banking services; 
  • Regulator, who oversees the ecosystem to be self-sufficient.
To ensure a strong open banking system in Nigeria, the above-mentioned participants must be involved and allowed to play a decisive role in their special areas. This article aims to contribute towards building a solid open banking ecosystem in Nigeria by highlighting five pillars that can strengthen and sustain the open banking system. 
  1. Control.
Building a successful open banking ecosystem in Nigeria thrives on control. Control in this sense means that market participants must be verified and licenced if they want to gain access to the ecosystem, be it an AIS, PIS, ASPSP, or other players. However, the requirement for accessing a regulatory license should be transparent as possible. This will eliminate all forms of ambiguity which lead to unjustified delays in the licensing process, with huge financial resources invested. This will also lessen the chance of big players dominating the space. In a bid to ensure that this strategic policy of control stands, the regulatory bodies must establish : 
  • a single register of licensed participants;
  • a certification authority;
  • an open banking API catalogue;
  • an electronic channel for resolving issues and disputes raised between market participants
  1. Security.
One of the negatives registered in open banking is its susceptibility to fraud. For instance, with the fast adoption of e-currency or digital currencies, cybersecurity problems will increase. Therefore, stakeholders should prioritise security. On this note of concern, banks and eWallets must apply complementary measures to ensure that access to accounts stays secure. Providing third parties with access to financial data, or payment initiation facilities should apply the most secure, but at the same time, convenient means of authorisation and user authentication. To further ensure that the security of end-users is not compromised, banks should build a device that verifies TPPs’ regulatory certificates. 
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  1. Uniformity Of Conditions.
The open banking system which has been gaining momentum in Nigeria in recent times can attract large investments as long as the conditions of requirements are in uniformity. In Nigeria, accessing open banking APIs becomes difficult when a TPP has to sign an agreement with each bank separately. The prevailing issue in the open banking system in Nigeria is the variation of requirements among Nigerian banks. Various policies for granting access to TTPs among banks might be contradictory. Consequently, having to enter into hundreds of different agreements would be a barrier to penetrating the market. The reason why open banking is necessary for the Nigerian financial space is to avoid a closed market where the agreements are controlled by each bank and, accordingly, may be terminated at the bank’s discretion anytime.
  1. Insurance.
To ensure that open banking thrives in Nigeria, every involved party must be insured against the risk of fraudulent acts, data breaches, operational disruptions and so on, so that there can be unmitigated use of open banking channels and features. To resolve conflicts and instantly compensate for probable damages, the liability perimeter of each market participant should be specified, and a protocol for resolving emerging disputes and ensuring fast damage compensation be stipulated. It should be agreed legislation that insurance cost should depend on the number of users who have provided access to accounts, as well as on the number of payments carried out by a specific market participant in the open banking framework.
  1. Monetisability of API.
When APIs are not monetized, banks will stay off. If access to open banking APIs is free, banks will not be interested in providing high-quality APIs, which in return will hinder their comprehensive use in offering commercial products. When there’s no support for banks who are largely API providers, quality API which guarantees better customer experience will not be available or accessible. To tackle this situation, regulators should set a single price ceiling and unified billing system for open banking API access. Another incentive for banks would be to oblige TPPs to build and open up access to their APIs, too, thereby creating a two-way exchange of information. Featured image source: Medium
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This article was first published on 23rd February 2022

nnaemeka-emmanuel

Nnaemeka is an academic scholar with a degree in History and International Studies from the University of Nigeria, Nsukka. He is also a creative writer, content creator, storyteller, and social analyst.

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